Product Liability in the US – From Asbestos to Riches?
A Civil Litigation – The American Way
Civil litigation has had an important influence on tobacco policy in the US. Claims brought by or on behalf of private individuals have been complemented by states and the federal government seeking through litigation a route to recover healthcare costs, punish wrongdoing and obtain regulation. Since the late 1990s there have been frequent headlines about multibillion dollar settlements and jury awards and courtroom victories for plaintiffs against the tobacco company. It should be remembered, however, that during the preceding decades the tobacco industry had been able to insulate itself extremely well from legal actions. This longer term perspective underlines that the US tort system should not be simply viewed as an easy touch for every injured plaintiff who can find a wealthy defendant. Yet civil litigation has provided the key in the US to not only providing compensation for some of those injured by tobacco related illnesses, but also persuading the US tobacco industry to accept some controls on its practices. This is in marked contrast to the failure of the US regulatory regime, at least until recently, to address seriously tobacco control issues. Indeed civil litigation can be viewed as the ‘band-aid’, which steps in when political processes fail.
It is a tribute to the flexibility of the US civil law and the tenacity and power of the US plaintiff bar (with at times the backing of state and federal Attorney-Generals) that legal theories that once seemed fanciful1 (and probably still would be in UK courts) have been invoked with occasional success against defendants that once looked impregnable. Indeed the successes came at the very time when the industry seemed more impregnable than ever because of mandatory health warnings and the Supreme Court ruling in Cipollone v. Liggett Group Inc.,2 that these pre-empted most civil actions. Moreover, the US system offers such a wide range of fora that even unsuccessful litigation can be problematic for an industry facing challenges on many fronts. There are 50 state jurisdictions plus the federal jurisdiction giving plaintiffs many different opportunities to try out their arguments. In addition cases are tried by jury and since many of the issues will be factual in nature, failure in one case need not deter lawyers from trying another set of facts before a differently constructed jury. Obviously if such cases were continually lost plaintiff lawyers – motivated by profit as well as conscience – would vacate the arena; but it only needs a modest success rate combined with the prospect of high damages, perhaps boosted by punitive damages, to give enough encouragement to lawyers working on contingent fees and so ensure that the industry faces a continuing (un-)healthy flow of litigation.
Indeed uncertainty about litigation can be problematic for an industry that needs to attract investors. Hence ironically the large MSA between the tobacco companies and the states,3 although imposing at first glance significant burdens, at least offered the silver lining of finality and predictability. By contrast the failure to have a nationwide class action on liability certified, even one limited to punitive damages, lifted the threat of a massive knock-out blow, but ensured individual or state class actions would continue to irritate the industry. However, the tobacco companies could not have risked all on a nationwide class action.
B Three Waves of Litigation
Three waves of tobacco litigation can be detected. Neither the first wave (understood as falling between 1954 and1973)4 nor the second wave (between 1983 and 1992) delivered a cent for any plaintiff. Writing in 1983 an industry lawyer wrote:
I need not remind you that over the past 20 years, no less than 100 civil suits in the USA. have been successfully defended by our Industry. Continuous success has not been coincidental. On the contrary, it has very largely been achieved by a coordinated and consistently applied self-discipline on the subject of smoking and health within the Industry.5
An attorney with R.J. Reynolds had a more brutal explanation stating in an internal memorandum: ‘To paraphrase General Patton, the way we won these cases was not by spending all of [R.J.R.]’s money, but by making that other son of a bitch spend all of his’.6 It is only during the most recent Third Wave, starting with the state Attorney-General’s action against the tobacco companies, that the tobacco companies’ defences have been breached.
During the first two waves there was a fundamental reluctance on the part of judges and juries to allow people to recover for injuries which it was commonly thought they had brought upon themselves by smoking. At least when looked through hindsight tinted glasses many people assume there had been popular knowledge of the health risk by ordinary citizens, even if in fact such risks had not been firmly scientifically established and notwithstanding the tobacco industry had clouded the debate through contesting evidence of harm and marketing tobacco products in a positive manner. The industry was able first to argue it did not have knowledge of the risks and later to suggest the general public should at the same time have known of the risks. This same logic is evident in recent litigation in Europe and common law countries outside North America.
The first two waves were induced by scientific evidence exposing the risk of smoking and the developing health awareness culture in the US.7 Moreover in the late 1960s and early 1970s the US was also, perhaps for the only time in its history, optimistic about the ability of government to produce a better and certainly a safer world.8 The US became, for example, the first country to introduce controls on the advertising and sale on cigarettes.
By the time of the second wave, this regulatory spirit had disappeared, but the frontiership spirit of the plaintiff product liability lawyers remained and their reputation and courage had been enhanced by victories over corporate America. The defeat of the asbestos industry was undoubtedly their most significant victory and many involved in that process wanted to take on the tobacco companies. No doubt they did so out of a mixture of philanthropic and mercenary motives combined for some with the desire for the adrenalin rush associated with high profile and risky litigation. The charges were again essentially framed in public health terms. Once again they were rejected by the courts.
In the first wave of litigation the tobacco companies had convinced America that they should not be held responsible for the unforeseeable harm their products caused. In the second wave – once that harm was public knowledge – they argued that individuals should have looked after their own health and even the addiction argument did not convince a nation that saw many smokers able to kick the habit. Essentially America seemed to be saying that there was a right to sell tobacco and to smoke and that if harm occurred this was due to an inherent risk of the product which every reasonable citizen should have been aware of. The fact that tobacco companies might have downplayed the risks was probably accepted as understandable by many and smokers’ after the event protestations that they would have behaved differently if they had been informed of the risks sounded unconvincing.9
The position was different with the Third Wave. The lawyers, who had taken on asbestos so effectively, had struggled against the tobacco industry. The asbestos industry had admitted its sins and paid a heavy price, often being bankrupted by the lawyers. By contrast the tobacco industry had played hard ball and refused to concede an inch. Something needed to change if plaintiffs were to turn the table.
One of the crucial moments came when Liggett broke ranks and spilled the beans on how the industry had conspired to deceive the American government and its people. Also insiders started to leak internal papers telling a similar tale. This sat uneasily with the 1954 Frank Statement where industry had entered into a pact with the American people to be honest about the risks of smoking and invest in research to detect the truth. The image taken 40 years later of seven tobacco company executives raising their arms and swearing they did not believe tobacco was addictive came to haunt the industry. Although most people might have suspected the tobacco companies had known more that they let on to, it was a different matter altogether to have the evidence placed before them of how in order to make large profits the tobacco firms had cynically controlled information and research and manipulated product that had killed hundreds of thousands of Americans.
Also the first plaintiffs in the Third Wave were not capable of being portrayed as money-grabbing individuals, who should have known better, but were rather Attorney-General’s representing cash strapped states seeking to recover Medicaid expenditure related to smoking illnesses. Other notable early plaintiffs included the Florida flight attendants whose action concerned ETS. This in itself was an issue that had public support, as evidenced by the widespread and strongly supported rules on bans on smoking in public places. It also avoided the argument that the plaintiffs had brought the harm upon themselves.
The tone of the Third Wave is well reflected in the Engle10 case. This was a class action based on a claim for harm to all smokers in Florida. The dramatic aspect was the punitive damage award of $144 billion, which seemed to reflect the desire of the jurors to condemn the shoddy behaviour of the tobacco industry. Although ultimately vacated, this decision represented the feelings of many American citizens, who did not like being lied to by corporate America. Pro-plaintiff results have since been seen on the West Coast, East Coast and even in the mid-West. However, civil litigation exposure, even in the US, seems to be ultimately manageable for the tobacco companies. Apart from the state recovery of healthcare costs there have been only patchy successes. The Third Wave can be viewed in large measure as concerned with the use of tort law as a regulatory instrument to punish conduct, which fell below the level citizens expected of corporations. It also forced the tobacco industry to accept a greater degree of regulation than had previously have been imposed by the regulatory system.
C The First Two Waves
The legal arguments advanced during the first and second waves include both contractual claims based on express and implied warranty theory and tortious claims based on negligence and strict liability.
(a) Express warranty The U.C.C. §2–313(1), provides:
Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
Express warranty claims were based upon the argument that cigarette manufacturers made claims about their product that were false. In theory there is no need to show that the statement was negligently made, but it is necessary to show that the statements were false and not just misleading. This was problematic to establish because the advertisements relied on did not provide letter and verse as regards the safety of the products, but rather simply created an impression of safety.
Thus courts have not been impressed by warranty claims based on ‘Camel’ advertisements stating ‘more doctors smoke “Camel’s” than any other cigarette’ and ‘are mild and agree with the throat’11 and ‘Pall Mall’ claims that they were ‘mild’, would ‘guard against throat scratch’ and ‘would lessen throat irritation’.12 In Cooper v. R.J. Reynolds Tobacco Co., (the ‘Camel’ case) there was also mention of an advertisement stating ‘Camel cigarettes are harmless to the respiratory system’, which might have had a better chance of founding an express warranty claim, because it was more explicit in the health claim. However, this is an example of the poor lawyering that bedevilled plaintiff claims in the early days. The lawyers in Cooper could not locate the alleged advertisements and not unsurprisingly in the circumstances the claims had to be dismissed.13
Gunsalus v. Celotex Corp. is a good example of how the legal requirements for an express warranty claim might be difficult to establish in a tobacco claim. Being a second wave case, after the Cipollone case,14 it only involved advertisements before 1966 after when pre-emption applied once health warnings became mandatory. The ‘Pall Mall’ advertisements were found to contain ‘no explicit guarantee, promise, or warranty at all’ and – a point that was important as regards statutes of limitation – no ‘express warranties of future performance’. Moreover the statements were viewed as ‘representations of mildness or comfort, taste or enjoyment, not health and safety’. It was also held to be a requirement that there had to have been justifiable or reasonable reliance and the court held that reasonable people would not rely upon them regarding their health as the statements were concerned with enjoyment. Neither could the necessary causal connection between the warranty and the harm be established, because it could not have been shown that the plaintiff would have stopped smoking but for the advertisement or have switched to a safer brand.
The plaintiff in Pritchard v. Liggett and Myers Tobacco Co. was more successful. Advertisements for ‘Chesterfields’ claiming that ‘a good cigarette can cause no ills and cure no ailments … but gives you a lot of pleasure, peace of mind and comfort’ and ‘nose, throat, and accessory organs [are] not adversely affected by smoking Chesterfield cigarettes’ were described as compellingly pointing to an express warranty. However, the federal Court of Appeals held that the plaintiff would have to establish reasonable reliance on the advertisement.15 The jury found no reliance and also that the plaintiff had assumed the risk of injury, but the case returned to the Appeals Court.16 A retrial was ordered because of the way the trial judge had confused matters by bringing in issues of the defendant’s knowledge and not distinguishing between contributory negligence (which was said not to be available to an express warranty claim) and assumption of risk which was available, but the Court felt should have failed because of the health claims made by the manufacturers. Judge Smith who gave the main judgment thought that it should be sufficient that the advertisement be of the type whose ‘natural tendency’ was to induce purchases. The majority, however, still required proof of reliance, and rejected Smith’s arguments that a difference in punctuation between s. 12 of the Uniform Sales Law and the Pennsylvanian law meant a different policy had been adopted. Despite this relatively favourable judgment the lawsuit was dropped presumably because of the difficulty of proving reliance given that this had not been found by the first jury.
Express warranty claims were an obvious tack to take in the first wave of cases, but in the second wave the scope for such arguments was reduced because of the changed nature of the advertisements and the pre-emption issue (discussed below in relation to failure to warn claims). However, in Cipollone v. Liggett Group Inc., the issue was raised as a second-wave plaintiff relied on the same ‘Chesterfield’ advertisements as in Pritchard as well as a radio programme sponsored by ‘Chesterfield’ where the presenter, a Mr Arthur Godfrey, boasted of the healthy properties of the cigarettes. The jury in that case found there had been reliance, but awarded the plaintiff no damages. This seems to have been because the jurors’ believed that Mrs Cipollone had been aware of the risks, which were a matter of general knowledge. However, in the first judgment against a tobacco company her husband was awarded $400,000 in derivative damages, although he never actually received the money as the matter was taken on appeal and his lawyers did not see the case through and the family dropped the case following his death. Nevertheless, this illustrates how much easier it is to win claims where the smoker is not the recipient of the damages, albeit that admittedly a husband is rather closely associated with his wife as an economic and social unit.
The Cipollone case went to appeal on the issue of reliance since the trial judge had found it sufficient that the advertisement have a natural tendency to induce.17 Rejecting this as sufficient to be the ‘basis of the bargain’ since it would even cover instances where the purchaser had not seen the advertisement, the Court of Appeal was equally reluctant to insist on proof of reliance. The Court instead held that the plaintiff needed initially only to prove that she ‘read, heard, saw, or knew’ of the advertisements, but the company could escape liability if it could show that she knew the affirmation of fact or promise was untrue. The requirement for knowledge of untruth was a hard task for tobacco companies to make out given the scientific uncertainty that existed. However, in practice this seems to have been interpreted as allowing the jury to take account of the common knowledge held by society and to enable tobacco companies to escape liability, even if they had misled the public.
(ii) Implied Warranty
Implied warranty was a popular basis for claims during the first wave of litigation. This warranty has been said to cover variously that the product was free from defects, fit for ordinary use and wholesome for human consumption.18 Its significance declined during the second wave as once the dangers of smoking had become widely known then it became more difficult to argue such properties breached any implied warranty.
Although warranty usually sounds in contract it should be remembered that the first wave of tobacco litigation coincided with academic articles espousing breaching the citadel of privity and creating strict products liability.19 Using implied warranties to create strict liability by sidestepping privity concerns was in vogue. This explains why some of the courts treated it as a matter of delictual or tortious liability. In any event despite implied warranty claims supposedly being independent of negligence, most courts tend to resile from the full impact of such strict liability rules and have usually imposed a requirement of foreseeability.
Thus in Lartigue v. R.J. Reynolds20 it was said that, ‘By and large, the standard of safety of the goods is the same under the warranty theory as under the negligence theory’. The Court of Appeal for the Fifth Circuit said in Green v. American Tobacco Co.,21 that ‘The defendant could not be held liable as an absolute insurer against consequences of which no developed human skill and foresight could afford knowledge’. And again in Lartigue the manufacturer was described as ‘an insurer against foreseeable risks – but not against unknowable risks’ and the Court concluded ‘Thus far, public policy has not decreed absolute liability for the harmful effects of which no developed skill or foresight can avoid’. In Ross v. Philip Morris and Co.,22 the Court of Appeal for the Eighth Circuit found the trial court correctly charged the jury and properly refused plaintiff’s instruction which would have made defendant an absolute insurer – without regard to ‘reasonableness’ and without regard to ‘developed human skill or foresight’. However, it went on to state that ‘the burden that the foreseeability instruction placed upon defendant was not a light one. For defendant was required to offer evidence affording proof that no one, not even the most renowned scientist or the most eminent medical authority in the world, could have foreseen the cancer-producing danger that smoking cigarettes can – under certain circumstances – apparently create’. Juries were, however, willing to hold that the cancer risks could not have been determined by human skill or foresight. Whether they would have come to the same conclusions with the benefit of modern evidence on the industry’s knowledge of the risks is a more open question. It may be that these cases were unsuccessful not because of gaps in the substantive law, but rather due to the lack of evidence to substantiate such claims.
In Green v. American Tobacco Co., the Florida Supreme Court held that ‘the seller’s actual knowledge or opportunity for knowledge of a defect or unwholesome condition is wholly irrelevant’ under an implied warranty theory.23 This gave considerable hope to plaintiffs, although (as commented on in Ross) other courts may have been less willing to adopt this approach. The Fifth Circuit Court of Appeal being bound by this interpretation of Florida law needed to change tack to defeat the plaintiff’s claim. This led to an outcome that was even more demoralising for plaintiffs, for in what has been described as a ‘singularly pre-modern’ decision24 the Court of Appeals for the Fifth Circuit found that the jury had applied the concept of reasonable fitness in an acceptable way and thereby held that an implied warranty claim should be based on a defect or adulteration and did not apply to an allegation concerning the unwholesomeness of a standardised product line.25 This case was heard en banc26 and overturned a previous panel that had held cigarette companies should be liable for lung cancer.27 The previous majority were now in the minority and were vehement in their criticism of the majority, whose opinion they argued meant: ‘He who sells for a profit a product which caused the dread disease of cancer and also caused the ultimate of all dreads, death itself, can wiggle out of it by convincing a lay jury in a swearing match among super-scientists that such a product may somehow be reasonably safe for personal consumption by the general public’. and they asked, ‘How can anything, as a matter of fact, be reasonably fit for use by the general public when it is known to kill and no one knows whom it will kill?’
Thus even if the foreseeability issue was overcome – as in more modern times could easily be the case – the implied warranty theory now posed an almost insuperable obstacle; it is only available where the product is in some way deviant. In Pritchard it is true that the majority had left the flexible concept of whether cigarettes were ‘reasonably fit’ to the jury, but that case is best remembered for the opinion of Judge Goodrich. In a colourful passage he compared the risks from smoking to the risks from whiskey, peanuts and butter:
If a man buys whiskey and drinks too much of it and gets some liver trouble as a result I do not think the manufacturer is liable unless (1) the manufacturer tells the customer the whiskey will not hurt him or (2) the whiskey is adulterated whiskey – made with methyl alcohol, for instance. The same surely is true of one who churns and sells butter to a customer who should be on a non-fat diet. The same is true, likewise, as to one who roasts and sells salted peanuts to a customer who should be on a no-salt diet. Surely if the butter and the peanuts are pure there is no liability if the cholesterol count rises dangerously.
Liability should arise where an express assurance of safety had been made (and that sounds like an express warranty claim) or when the product was adulterated. But there was an unwillingness to condemn products for their inherent risks which is also reflected in the comments to the Second Restatement that argued strict liability would not apply to ‘good tobacco’. This should not be considered unexpected given that Judge Goodrich was the director of the American Law Institute at that time! Goodrich’s views found favour in Ross. However, where one might take issue with Goodrich is as regards products that should be found defective where the manufacturer knew or should have known of risks and failed to warn about them. Thus before warnings became commonplace there might have been a time when an implied warranty claim should have succeeded, because the inherent risks had not been made known to the public. Now the risks are common knowledge then clearly an implied warranty claim would be difficult to establish. Implied warranties in the US blur into tortious liability and similar issues clearly arise in the tortious context of negligence and strict liability.
Tort law in relation to products liability can cover both negligence and strict liability actions. The first wave occurred just as strict liability in tort for product liability was being established. That perhaps explains why during this period most claims were in negligence or where strict liability was raised it was done in the context of implied warranty claims. By the time of the second wave strict liability was firmly established and became the obvious doctrine to use. However, regardless of how the claim is framed similar issues arise and similar obstacles to recovery have presented themselves.
It is now customary (if still controversial) to divide product liability claims into manufacturing, design and failure to warn defects. Professor Schwartz did manage to track down a manufacturing defect case involving a cigarette that burst into fire and burnt the smoker’s moustache.28 This was before the days of strict liability, but the courts were able to invoke the doctrine of res ipsa loquitur to support the conclusion that it must have been caused by the presence of a foreign inflammable substance. Equally in Horton v, American Tobacco 29 it was noted that as far back as 1918, the Court found a tobacco company liable for inserting a putrid, decayed human toe in its tobacco, which caused the plaintiff to contract ptomaine poisoning.30 Another case involved tobacco contaminated with fragments of a dead mouse.31 However, the more usual complaints relate to failure to warn and design defects.
(a) Failure to warn Failure to warn claims had greatest prominence with respect to smokers who smoked at a time when it could be shown that cigarette companies knew (or at least should have known) of the dangers of smoking and yet failed to warn of them. Once warnings were required by statute this effectively barred such claims. There have been some judicial opinions that could have opened the way to liability for failure to warn.
Courts have held tobacco manufacturers to the standard of an expert; someone required to keep abreast of research. In Ross the defendant had been judged by the standard of ‘the most renowned scientist or the most eminent medical authority’.32 In Kotler v. American Tobacco Ltd.33 the Court noted that warranty law imposed a higher standard than negligence, but that in both the manufacturer only had to do what was reasonable. Nevertheless, the Court confirmed that manufacturers have:
an affirmative duty, to keep abreast of responsible literature on the subject. It doesn’t mean that if there is something that appears in the National Inquirer or some such paper that the manufacturer has to bend itself all out of shape in response. But if there is legitimate, responsible information, or rather, legitimate information from responsible sources which exists in the community, which exists in the medical, scientific or industrial community, then the manufacturer is charged with familiarity with all of that information, insofar as it bears on the safety of that manufacturer’s product.
Indeed in Pritchard a federal court even held that it should have been left to the jury to decide whether it would have been reasonable for cigarette manufacturers to conduct tests to determine not only the carcinogenic content of their own brands, but also the more general relationship between cancer and smoking.34
One way, in which failure to warn claims often fail, even if the main allegation is established, is because of the need to prove that the plaintiff would have followed the warning. In Cipollone the trial judge seemed willing to assist the plaintiff in sidestepping this argument by leaving to the jury the question of whether there had been an industry wide conspiracy to confuse the public. He clearly saw such a conspiracy himself, which he described as being ‘vast in its scope, devious in its purpose, and devastating in its results’.35 Juries have, however, been less generous. It is true that in Cipollone failure to warn was found, but as the plaintiff was held 80 per cent responsible under New Jersey’s comparative fault rule no damages were payable. This rule does not of course apply to all jurisdictions and is a stricter rule than under English and most European laws where apportionment of damages is more common. Nevertheless, Rose Cipollone’s husband, Antonio, was awarded $400,000 by the jury under derivative actions, but after various appeals this claim was dropped, because the lawyers had run out of resources to take on the tobacco companies and the family after nine years of litigation decided to discontinue after Antonio’s death.36
There are further obstacles in the way of winning a failure to warn case. Kotler, for instance, makes it clear that in assessing what warnings are reasonable the knowledge consumers are supposed to have themselves can also be taken into account. As was the case in Cipollone, the defendants were often keen to argue contributory negligence/comparative fault or assumption of risk. However, an assumption of risk defence only really became appropriate after health warnings have been placed on the packets. Although there might be a debate even then about the extent to which assumption of risk should play a part given that the warnings were not always explicit. Nevertheless in the US federal mandated health warnings would limit the ability of plaintiffs in the future because of their scope to pre-empt tort claims. Pre-emption can also be relevant to warranty actions, but its most obvious application is in relation to failure to warn claims.
(b) Pre-emption Since 1966 US cigarettes have had to carry a health warning.37 The Public Health Cigarette Smoking Act 1969 specified that no statement except the federal warning shall be required on any cigarette package and no ‘requirement or prohibition based on smoking and health shall be imposed under State law with respect to the advertising or promotion of any cigarettes the packages of which are [lawfully] labelled’.38 Usually statutory requirements do not pre-empt tort actions. It could still be possible to find the statutory warnings inadequate, perhaps because they conveyed an inadequate message, e.g. failure to mention addictive nature of cigarettes, or because they are not set out in a sufficiently compelling form, e.g. should be larger or as one author suggests include a skull-and-crossbones.39 However, the Supreme Court had to decide whether the words ‘requirement or prohibition’ pre-empted such actions.40
There were three opinions within the Court. The opinion of Justice Scalia would have pre-empted all claims post-1969 and failure to warn claims post-1966. He criticised the plurality’s approach of giving pre-emption the narrowest interpretation possible in a case where there had been an express intention to pre-empt. Justice Blackmun would have pre-empted no actions as he found it inappropriate to describe common law damage claims as imposing a requirement or prohibition, for whereas regulatory law usually leaves traders little discretion, the essence of the common law is to allow trader’s discretion, subject to the obligation to pay damages if their failure to modify their behaviour causes injury. Justice Stevens sought a compromise, which combined at different times with the views of the other opinions to hold sway.
The approach of Justice Stevens was to pre-empt claims alleging warnings in advertisements were incomplete or inadequate, that warnings on packages were inadequate and that otherwise adequate warnings had been diluted by favourable messages in advertisements.41 This pre-emption was said to be necessary in order to maintain a uniform approach to warnings and ensure free movement within the Union. However, he drew some lines of limitation around the pre-emption in order not to permit this requirement to be used as a smokescreen for deception; so it did not cover intentional concealment of facts whose disclosure was required through ‘channels of communication other than advertising or promotion’; or conspiracy between companies to issue fraudulent misrepresentations or intentionally to conceal facts. In doing so he distinguished requirements and prohibitions relating to advertising and promotion from other duties that might be imposed on manufacturers unrelated to advertising and promotion. Whilst one might foresee a state law requiring disclosure of risks to a public health agency, for example, this distinction seems rather academic given that the main means for consumers to be informed of risks is through advertising and promotion. Similarly he distinguished requirements and prohibitions relating to smoking and health which were preempted from other duties that were not pre-empted such as the obligation not to deceive, however, it is hard to know when such a general obligation will be brought into play. Equally express warranty would be outside the scope of the pre-emption, as those claims would be based on a statement voluntarily made by the warrantor rather than deriving from state law. Certainly the end result of these fine distinctions created an uncertain picture, which by its very uncertainty would make litigation more complex and expensive.
Nevertheless, Justice Stevens suggested the extent to which some of the claims would not be barred. Failure to warn claims had to be based on testing or research or other action unrelated to advertising or promotion. As already mentioned these would only arise in limited circumstances. Express warranty claims would be allowed. However, fraudulent misrepresentation claims would not be permitted where the challenge was based on advertisements playing down risks to neutralise any warnings. Nevertheless, claims based on the concealment of facts could arise where there was a duty to disclose through other channels than advertising and promotion and perhaps more significantly claims based on false representations were not pre-empted, as the pre-emption related only to smoking and health requirements not those relating to the duty not to make fraudulent statements. Although, providing a few crumbs for plaintiffs it is salutary to read Schwartz42 who points out how hard it will be to take advantage of these exceptions. Few advertisement carry express claims of the type needed for an action or outright fraudulent misrepresentations and few state laws impose a requirement to disclose facts otherwise than by advertising. There is also the more general point that nowadays the risks of smoking are so well known that few people could convincingly argue that they would have changed their habits if they had been better informed. However, Rabin considers Cipollone, to have been only a minor setback.43 It only pre-empted failure to warn claims post–1966. As Rabin points out it left the pre-1966 failure to warn claims, misrepresentations and product design defect as bases for recovery. This turned out to be enough to let future plaintiffs have a foot in the courtroom door to put their case before a jury.44
(c) Design A full frontal attack on tobacco products involves challenging their design. This can take the milder form of alleging that a particular tobacco product has a less safe design than another existing product or could be made safer even if there is no present example of such a safer product. The stronger attack is to condemn tobacco as a product in a generic sense. However, such claims were always going to face a hard climb even to be left as a jury question for comment (i) to the Restatement (Second) of Torts stated:
Unreasonably dangerous. The rule stated in this Section applies only where the defective condition of the product makes it unreasonably dangerous to the user or consumer. Many products cannot possibly be made entirely safe for all consumption, and any food or drug necessarily involves some risk of harm, if only from over-consumption. Ordinary sugar is a deadly poison to diabetics, and castor oil found use under Mussolini as an instrument of torture. That is not what is meant by ‘unreasonably dangerous’ in this Section. The article sold must be dangerous to an extent beyond that which would be contemplated by the ordinary consumer who purchases it, with the ordinary knowledge common to the community as to its characteristics. Good whiskey is not unreasonably dangerous merely because it will make some people drunk, and is especially dangerous to alcoholics; but bad whiskey, containing a dangerous amount of fusel oil, is unreasonably dangerous. Good tobacco is not unreasonably dangerous merely because the effects of smoking may be harmful; but tobacco containing something like marijuana may be unreasonably dangerous. Good butter is not unreasonably dangerous merely because, if such be the case, it deposits cholesterol in the arteries and leads to heart attacks; but bad butter, contaminated with poisonous fish oil, is unreasonably dangerous.
Attempts to challenge the design of cigarettes have sometimes been refused. In Roysdon v. R. J. Reynolds45 the Court of Appeal for the Sixth Circuit upheld the view of the District Court that ‘tobacco has been used for over 400 years and that its characteristics have also been fully explored. Knowledge that cigarette smoking is harmful to health is widespread and can be considered part of the common knowledge of the community’.
In Forster v. R.J. Reynolds Tobacco Co.46 the Supreme Court of Minnesota did hold that the issue of defectiveness was not pre-empted by the Federal Cigarette Labelling Act. It would have allowed the issue of defectiveness to go the jury, but presumably the case was dropped because the main failure to warn claim was pre-empted.
In Horton v. American Tobacco Co.,47 a jury found that cigarettes were defective, but invoking the comparative negligence doctrine awarded the plaintiff no compensation; a decision which was upheld on appeal. Comments of some jurors made it clear that they thought cigarettes had made the plaintiff sick, but that he had known what he was doing and as Derthick notes liability without damages struck them as a reasonable compromise.48 There were various opinions voiced in the courts. Some judges clearly took the view that tobacco could not be defective simply because it injured people if there was nothing untoward with the quality of the product, i.e. the standard comment (i) ‘good tobacco’ stance. Others would have been more generous to the plaintiff and favoured a risk:utility over a consumer expectation standard and thereby circumvented patent danger defences by making knowledge of the risk and ability to avoid danger only two aspects of the assessment.49 The issue of whether it was inappropriate to mix the additive DDVP with tobacco before making cigarettes was put to the jury in Horton, but the expert evidence only suggested it was a possible carcinogen and the claim failed.
In Cipollone an alternative design claim was run on the basis that Liggett had developed, but not marketed, the safer ‘palladium cigarette’.50 This added a palladium crystal and nitrogen salt to the tobacco. However, whilst the trial judge found this was relevant, nevertheless the plaintiff failed on causation, as she could show neither that she would have switched nor that the 12 per cent reduction in risk would have prevented her from developing cancer.51
Indeed cigarette design, like that of other products involves a polycentric choice between many competing aspects of the products.52 It is hard to see many PREPs as exact counterparts of cigarettes so as to render the more risky cigarette defective. Certainly any full frontal assault on tobacco as a generically dangerous product has had no success. The drafters of the Second Restatement of Torts had been careful to provide that ‘good tobacco’ was not defective even though it could be harmful.53 The courts also refused to apply a generic risk:benefit analysis in tobacco cases.54
D The Third Wave
(i) Why Did Lawyers Try Again?
In Haines v. Liggett Group55 Murray Bring, Vice-President and General Counsel of Philip Morris, was quoted as saying in September 1988 that ‘almost 200 law suits have been brought in the last five and a half-years and the cigarette manufacturers have not … paid a penny to settle one’. In Haines plaintiffs incurred several million dollars or out-of-pocket expenses and the attorney’s bankruptcy forced them to retire.56 So why did plaintiff law firms have the energy and motivation to bring a Third Wave of claims?57
At one level the asbestos litigation is responsible for the tobacco cases. That litigation provided plaintiff law firms with money, expertise and confidence to take on a major industry. The lawyers were also better organised. One group of lawyers orchestrated by Wendell Gauthier known as the Castano58 combination in particular brought together considerable firepower with around 60 firms each paying $100,000 a year into a fighting fund to bring a nationwide class action.59 Other lawyers joined in supporting actions, principally but not exclusively, those brought by the state Attorney-Generals, prime movers amongst whom are Ron Motley and Dickie Scruggs who feature prominently in Zegart’s Civil Warriors60 and Don Barrett who is centre stage in Orey’s Assuming the Risk.61 Other notable tobacco advocates include the Rosenblatts and Woody Wilner from Florida. They also had the support of Professor Daynard’s Tobacco Products Liability Project at Northeastern University62 and of course a growing public health industry.
However, that on its own was not enough and it was really the ‘smoking gun’ evidence that the industry had known more than it let on about the risks of smoking and in particular about addiction and light cigarettes that encouraged the lawyers to try taking on Big Tobacco again. A chink in the industry’s armour had been found by Marc Edell, the lawyer in the Cipollone case who had obtained more than half a million documents.63 Later in the Minnesota litigation 39,000 documents were released which attorney–client privilege had been claimed for and 30 million pages were placed in a public depository.64 Instead of swamping the plaintiff lawyers the excessive disclosure provided defendants with rich pickings to be used in litigation. This was digitalised, archived and made searchable by the public health community.
Several insiders assisted both the regulatory authorities and lawyers. ‘Deep cough’ as she was known, provided information on R.J. Reynolds manufacturing processes including the use of reconstituted tobacco.65 Infamously Merryl Williams took documents from Brown and Williamson and Stanton Glantz posted them on University of California website and published selected ones in The Cigarette Papers.66 There were also disgruntled ex-employees who were sore that their promising research had not been continued, like Victor Noble and Paul Mele of Philip Morris67 and university researchers like Gary Huber of Harvard who also fell out of favour with the industry when their research disturbed the industry and the funds stopped flowing.68 Soon some high ranking tobacco industry insiders defected, including Jeff Wigand, former Vice-President for Research and Development at Brown and Williamson whose story was told in the film The Insider. He talked to the FDA about genetic manipulation of tobacco69 and William Farone former Director of Research at Philip Morris also came forward. The stories the industry insiders were able to tell served two purposes. They enflamed public hostility towards the tobacco companies and gave regulators the opportunity to intervene, which in turn reinforced the bad public image. In the US this affected how juries perceived cases.
They were also fortunate that Liggett, a relatively small firm, in March 1996 had broken ranks with the larger cigarette makers. It was being run by Bennett LeBow, who was not a traditional tobacco company insider, but rather specialised in asset stripping operations and wanted to find a way out of the litigation.70 Initially Liggett reached an agreement with the Castano group of lawyers and five states that had sued Liggett to recover the public costs of treating smoking-related illnesses. This broke down when the Castano case was decertified as LeBow had inserted a clause to that effect. Later a broader deal was struck with the Attorney-General’s under which Liggett also agreed to hand over crucial industry documents.71
These revelations allowed smokers to be portrayed as victims of an industry conspiracy rather than as weak willed people who brought the risks upon themselves. Victims of second hand smoke such as the flight attendants in the Broin case were also appealing plaintiffs. Moreover the bandwagon started to roll properly when the states brought claims to recover their Medicaid costs. This was again good territory for the plaintiff lawyers. The plaintiff was the state, not the actual smoker, and the ultimate beneficiary was the taxpayer. This litigation provided income for plaintiff firms and class actions and punitive damages provided the lure of a pot of gold at the end of the rainbow.
Finally of course on occasions the plaintiffs were lucky with their judges and juries. The apparent success and willingness of lawyers to bring these cases is, however, remarkable when it is remembered that the theories on which the claims were based were contestable and offered no guarantee of success at first instance or on appeal. Moreover it was virtually inevitable that successes at trial level would lead to years of appeals given the litigation history of tobacco claims and resources of the defendants.
The high risks of this litigation need to be borne in mind when assessing the fees lawyers obtained. There have indeed been some good pickings for lawyers in the tobacco cases mainly for their work in relation to the MSA. For instance the six firms that represented New York state in the 1998 national settlement were awarded $625 million, or 2.5 per cent of New York’s $25 billion share of the settlement, in April 2001.72 One group of California attorneys, who also pursued several cases on a private attorney general theory, was awarded $637.5 million for its work. The Castano lawyers were awarded nearly $1.3 billion, representing 5 per cent of California’s $25 billion share of the nationwide settlement. This was the only arbitration award challenged by the tobacco industry and Judge Figueroa found it excessive as it took into account work outside the actual California litigation.73 Some of the lawyers in these cases were pioneers, many others seem to have jumped on the gravy train working for their local states. At the individual or class action level the fortunes of lawyers have been more mixed. Some notable lawyers may have earned large sums – for instance, the Rosenblatt’s have been amongst the most successful in Florida (winning in Broin and obtaining a $145 billion punitive damage award in Engle that was eventually vacated), but venturing into this arena was a demanding decision74 which for many has been fruitless and provided several false dawns. Although juries have awarded large amounts in damages they have frequently been overturned or reduced and the appellate process has taken many years.
The state Medicaid cases will first be presented. Then the class actions litigation will be considered before the individual litigation is addressed. Finally the chapter concludes with the litigation by the federal government. This may at times appear as something of a cook’s tour, but is useful to illustrate the scale, ebbs and flows and uncertainty of this litigation. It is sometimes hard to get a handle on the level of success in cases beyond the Medicaid and federal government litigation because so much of it has been taking place. A useful 2006 study of litigation found that in 31 of the 75 cases (41 per cent) that went to trial between 1994 and 2005 verdicts were returned in favour of the plaintiff.75 Seven plaintiffs had received $115 million after the exhaustion of appeals. Plaintiffs succeeded in 11 states with jury awards ranging from $165,000 to $145 billion and paid awards having ranged from $165,000 to $82 million including interest. Seven of the 31 verdicts (20 per cent) in favour of the plaintiffs were later reversed or vacated with three remaining on appeal or set for retrial. The amount of litigation was found to be tailing off slightly by 2005 and this trend seems to have continued. Class actions have generally not been very successful, but individual litigation has certainly produced some money.
E State Medicaid Cases
One of the problems facing tobacco plaintiffs had always been the suspicion by jurors that, notwithstanding the public denials of the tobacco companies, most smokers had actually known that smoking was not a healthy pastime and the feeling that it was unbecoming of them to sue for harm they had brought upon themselves. Even the evidence of industry misdemeanours might not have started the ball rolling if smokers were the only plaintiffs, but there were new players – the states seeking to recover for the healthcare costs they had to pay out to assist the poor who had been harmed by smoking related illnesses. Here were plaintiffs who had incurred costs through the misconduct of the defendants, had not assumed the risk and with respect to whom a payout would appeal to jurors who would indirectly benefit from the state coffers being swelled by transfers from the defendants’ profits.
The idea of such an action is said to have been brought to the attention of Mississippi Attorney-General Mike Moore by his law school classmate, Mike Lewis, when approached to represent his former bookkeeper, a lifelong smoker who had suffered a heart attack, fallen into poverty and had to rely on Medicaid; although of course the same thought had struck Professor Donald Gardner, but his ideas had remained in the Law Review.76 Another story is that the idea of the states suing direct was put to Susan Nial of lawyers Ness, Motley by Professor Daynard who had in turn had the concept put to him by a medical doctor, Gangarosa.77
Mississippi was the first state to file,78 but eventually 40 states were involved. A wide range of theories were deployed to justify recovery.79 Prime among these were claims for unjustified enrichment and that deceptive and misleading conduct wronged the public as well as individuals. These were not product liability claims challenging the safety of the product, but rather claims based on conspiracy, consumer fraud, deceptive advertising, antitrust violations, racketeering and breach of consumer protection statutes. Florida80 and Massachusetts even introduced express legislation easing such recovery.81 As Rabin noted these claims were at root shaky for whether the tobacco companies had been unjustly enriched or had wrongfully harmed the public involved the very issues of corporate versus individual responsibility for smoking which lies at the heart of the individual and class action litigation.82 He also noted that in economic terms it did not necessarily make sense if excise tax payments and the savings to health costs from premature death were taken into account.83
However, the reaction of the tobacco companies was very different from in the past. They did not resolutely defend their corner, but instead tried to negotiate a settlement. It is unclear what drove this tactic. They certainly must have feared losing a case. For instance, in Mississippi the Attorney-General had cleverly elected to seek relief in the chancery court, which had made some rulings that were helpful to the state; for instance that savings from premature death could not be set-off against the healthcare bill.84 The number of states suing was also snowballing under the influence of key figures, who were passionate about the cause and began to include Republican as well as Democrat Attorney-Generals. They were able to hire private attorneys working on contingent fees and thus avoid political control.85 The tobacco companies failed in their attempts to get the cases removed from state to federal Courts.86 The defection of key industry figures like, Jeffrey Wigand, has also been said to be a driver to settlement in order to keep them off the witness stand.87
This process of regulation by litigation has been criticised for allowing powerful state agencies to force concessions out of industry, through the fear of litigation, that could not be achieved through the political process.88 For sure the stock market was jittery about this state litigation as well as class actions and the risk of punitive damages in individual claims and resolving the litigation would strengthen the company value and bring stability. The sums also made a settlement likely as the legal costs of the six biggest companies were running at around $600 million per year and shareholders were nervous at the potential exposure.89 What the industry wanted was peace – peace to sell its product lawfully and no longer be viewed as a pariah.
In the face of difficult legal terrain, the settlement may also have arisen because of an appreciation that they had taken a public relation battering and resisting taxpayers’ claims would only make the public (who made up juries) more willing to condemn them. Their position was also further undermined by the decision of Liggett to break ranks, settle and turn over industry documents. These factors may have led the tobacco companies to believe that they could benefit from striking a deal, which in return for reimbursing the states would protect them from wider class action litigation and punitive damages, bring the certainty the stock market craved and achieve social respectability for the companies and themselves. Much was made by the industry leaders that there were new men at the helm who should not be blamed for the sins of their predecessors. Viscusi argues the industry tactic was ‘catastrophic error’ leading to pay-offs to the states that in their final form did not remove the prospects of litigation.90
The process of negotiating the settlement split the anti-tobacco movement as is so well explained in Michael Pertschuk’s Smoke in Their Eyes.91 Matt Myers of the National Centre for Tobacco-Free Kids was the sole public health representative at the negotiations. He is sympathetically judged by Pertschuk for being brave enough to realise that there was a need to compromise. There was, however, strong and vocal opposition from others, notably the San Francisco professor and activist Stan Glantz. Most anger was focussed on the limitations of liability initially agreed to, which were often characterised as immunities. Many distrusted any deal that the companies would agree to as they were aware of their past skill in brokering deals that ultimately benefited them more than public health. Such a position, however, simply meant never being able to come to any agreement. Compromise was not on the agenda of some, who believed there was momentum that would cause Congress to legislate whatever, despite the evidence of previous fallow years for Congressional activity. They wanted the lawyers to be allowed to wreck their havoc on the industry. However, whilst some lawyers, such as Minnesota’s Attorney-General Hubert Humphrey III were unenthusiastic about settlement92 and might have wanted to have their day in court the vast majority were concerned about their chances of success and preferred the security a settlement that gave their state significant cash. What is heart warming about the accounts of the negotiations is that many of the Attorney-General’s seem genuinely to have been concerned with securing valuable public health reforms as part of the settlement. Less has been written about the role of the Castano lawyers, but the impression is given that they wanted to extricate themselves from the litigation with remuneration.93 This perhaps illustrates that who conducts litigation on behalf of the consumer can affect what the objectives are both because of the way lawyers are remunerated and who their immediate clients are.
A deal was struck known in the so-called ‘global settlement’ in which the Attorney-General’s and the Castano lawyers participated. In return for reimbursements to states of $368.5 million, acceptance of some stiff public health proposals94 and measures to change the tobacco companies’ corporate culture the companies would have been granted immunity from class actions and punitive damage claims in individual cases for past conduct as well as an annual cap on individual claims of $5 billion per annum.
However, when the settlement went to Congress, as was necessary because the settlement involved restricting third party rights to litigate, it spiralled out of control at the height of public venom against the tobacco industry. Many people were concerned that it was too protective of the industry – trial lawyers, at least those not part of the settlement, feared not being able to litigate class and punitive damages and antitrust lawyers were concerned it allowed immunities from antitrust law. Tobacco farmers felt left out as it included no protection for them. The public also felt the tobacco industries were obtaining protection from liability whilst being likely to sell as many cigarettes as ever. Whilst President Clinton supported the deal he did not put his full weight behind it95 and there were no clear sponsors of the measure in the legislature.96 Key anti-tobacco figures such as FDA Commissioner Kessler, former Surgeon-General Koop and Congressman Waxman had not been involved in the deal and probably felt wronged at being usurped by the Attorney-Generals many of whose primarily interest was seen as being cash generation for their states rather than public health. Brandt concludes, ‘In retrospect, it is impossible to disentangle personal and political objections’.97
Senator McCain took the lead on the issue and his Bill instead proposed the payments be increased to $516 billion and whilst still incorporating the majority of the public health measures in its final form it contained none of the immunities the industry desired. It seemed that the anti-tobacco lobby was winning and loading the Bill in its favour. Anti-tobacco advocates kept pushing until the industry or Congress agreed to their bottom line – a line that kept moving as it was reached. As the Bill became weighted in favour of the public health lobby it became less appealing to the industry that began lobbying against it. Indeed it has even been suggested the industry might have welcomed the loading of provisions against it once it had decided that the Bill was no longer in their interest as it made it easier for it to oppose it.
Politicians were becoming aware that whilst the public did not like the tobacco companies, they also felt smokers were to blame for their illness. The McCain Bill was seen by some as providing for too much governmental interference and smokers were also concerned at the rise in cigarette prices foreseen. Others feared it would not lead to a reduction in teenage smoking or that the money raised would be spent on the wrong things.98 Opinion polls were showing that the public was not as keen as many had assumed about over strict regulation of tobacco. This emboldened Republicans to oppose the Bill and this became easier when amendments, ironically tabled by Republicans removing the remaining immunities from liability, made the Bill seem biased. This left McCain, a Republican, with the bulk of his support coming from Democrats. Derthick also argues that a deep seated objection was that the Bill was all about punishing the industry which was not a legitimate function for Congress.99 Congress did not like the original concept of removing citizen’s rights to seek redress, but found the McCain Bill based on punishment alone with no counterbalancing benefit to industry also unappealing.
Unsurprisingly, the deal collapsed. Some saw this as a success for the US political process.100 Others saw it as a missed opportunity and felt that the public health community should have rallied round the strengthened McCain Bill which offered stronger controls than was to emerge from the resulting litigation.101 It meant that the focus returned to the courtroom, but perhaps to promote a new more positive image deals were struck to the tune of £40 billion with the four states closest to trial – Mississippi, Florida,102 Texas and Minnesota.103 By November 1998 a ‘master settlement agreement’ had been agreed between the remaining states and Philip Morris USA, R.J. Reynolds Tobacco Company, Brown and Williamson Tobacco Corp., and Lorillard Tobacco Company.104 The tobacco companies orchestrated this final deal by negotiating with just eight of the remaining 40 Attorney-Generals with outstanding cases and only allowing seven days for the deal to be approved.105 Few Attorney-Generals would have been willing to risk the certainty of large financial rewards to take their chance before a judge or jury in the context of tobacco.
The MSA provided for $206 billion in reimbursement for the next 25 years and further sums in perpetuity.106 These amounted to an average revenue stream for states of $180 million and have been described as more akin to a tax than traditional tort damages.107 Indeed a criticism from the public health community and others is that the states have not ploughed anything like the amounts received into public health programmes directed against smoking.108 The cost was met through increased prices. Non-participants have to pay into an escrow account to cover future health cost litigation (and can only participate if they restrict the growth of market share to less than 25 per cent) or pay a 35 cent penalty per pack. The irony has not been missed that if the tobacco companies had met in private to raise prices, freeze market share and penalise defectors and new entrants they would have committed criminal antitrust violations.109